2014_Global_Intelligence_

Global Intelligence 2015
Year Ahead
December 2014
ManulifeAM.com

2
Year Ahead
Executive Summary
Global Intelligence draws together the individual views of Manulife Asset Management investment and
economic teams around the world. In this Year Ahead edition, our experts outline their expectations for the
economy and markets in 2015.
We start with a global economic outlook from our Chief Economist Megan Greene, including the major factors
impacting growth in key regions around the world. Watch a video summary of Megan’s outlook at manulifeam.
com/globalintelligence.
Our investment experts then discuss their market outlooks across geographies and asset classes, outlining
potential opportunities and risks for investors.
Key themes on our radar for 2015 include:
1. Monetary policy divergence. Policy in the US and UK will likely tighten while other major economies
will likely loosen or maintain a holding pattern. The timing of a US interest rate rise is uncertain but
most experts believe it is unlikely to happen until the second half of 2015 at the earliest, and may
even be delayed until early 2016.
2. Signs of progress towards structural reforms, particularly in Japan, Europe and Emerging Markets.
3. Impact of a stronger US dollar on global economies and markets. This is unlikely to result in
outﬂows from Emerging Markets and Asia on the same scale as 2013’s “taper tantrum.”
4. Oil price – how will the declining price of crude oil continue to have an economic impact in 2015?
5. Ongoing geopolitical uncertainty in multiple regions is likely to provide both opportunities and
risks to investors in the year ahead.
Table of Contents
ExecutiveSummary......................................................................................................................................2
2015 Global Economic Outlook .............................................................................................................. 3
Global Fixed Income ................................................................................................................................. 12
North American Fixed Income ................................................................................................................ 15
Japanese Fixed Income ............................................................................................................................ 19
Asian Fixed Income .................................................................................................................................. 22
Emerging Market Debt ............................................................................................................................ 25
Global Equities ........................................................................................................................................ 27
US Equities ................................................................................................................................................ 29
Canadian Equities ................................................................................................................................... 32
European Equities ................................................................................................................................... 35
Japanese Equities .................................................................................................................................... 37
Asian Equities ........................................................................................................................................... 39
Greater China Equities ............................................................................................................................ 42
Global Natural Resources ....................................................................................................................... 45
Asset Allocation ....................................................................................................................................... 48

December 20143
Year Ahead
2015 GLOBAL ECONOMIC OUTLOOK
Q3
Global growth of 2.5% — well below potential. Stronger growth in the US, weak
or no growth in Europe and Japan
US interest rate rise - Q3 2015
at the earliest but more likely in 2016
Emerging Markets — better able
to withstand reducing capital inflows.
+2.5%
GDP Growth
A global growth “tug-of-war” in 2015
Megan E. Greene, Chief Economist, Manulife Asset Management
The year ahead is likely to see the global economy caught in a tug-of-war between a modest recovery in the
US on one hand and a slowdown in China and low to no growth in Japan and Europe on the other. We expect
these competing influences to keep global growth bumping along a baseline of around 2.5%.
■ Global growth in 2015 is likely to be well below potential at around 2.5%.
■ The US economic recovery is gathering steam and will benefit from lower oil prices but faces headwinds
from an appreciating currency.
■ At the same time, other major markets — including Japan and above all the Eurozone — will serve as
worrisome drags on the global recovery.
■ Inflation is expected to be subdued — central banks in the US, Eurozone, and Japan in particular are not likely
to hit their inflation targets in the next two years.

4
Year Ahead
1
Source: Federal Reserve Bank of St Louis
-54.0%
-44.0%
-34.0%
-24.0%
-14.0%
-4.0%
6.0%
16.0%
26.0%
36.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 Jul-12 Apr-13 Jan-14
Retailsaleschangeyoy%
Newcarregistrationschangeyoy%
Retail sales change yoy (%) New car registrations yoy (%)
US: Leading the way with a broad-based recovery
The US has seen a number of false dawns in its recovery since the onset of the global financial crisis, but we
think this time is actually different and that the recovery is more likely to be sustained. We expect growth of
2.3% in 2014, 2.9% in 2015 and an average of 2.7% in 2016–18.
Retail sales and new car registrations robust over the past few quarters
Source: Bloomberg, September 30, 2014.
The US recovery has been primarily consumer-driven, with retail sales, new car registrations, and consumer
confidence figures remaining robust over the past few quarters. Households have repaired their balance sheets,
with household debt falling from around 95% of GDP in 2008 to around 80% of GDP in 20141
. Industrial
production has been buoyant, while manufacturing sentiment surveys have reached new highs since 2011.
The number of jobs added monthly to non-farm payrolls (NFP) has averaged over 200,000 — a very positive
headline figure — and the unemployment rate is back to 2008 levels. However, digging into the details
of NFP, there are a number of signs that falling unemployment may not translate into more robust private
consumption and that there is significant labor market slack.

5
Year Ahead
Since 2013, the number of high wage jobs (above US$20 per hour) has flattened while the number of low wage
jobs has increased. This is reflected in the share of manufacturing jobs (typically well paid) in the NFP figures;
in the third quarter of 2014, they hit a record low. One reason is that long-term unemployment benefits were
terminated in 2013, so high wage workers who were holding out for higher paid jobs were forced back into the
work force at lower wages.
With most jobs being added in low wage industries, a fall in unemployment is unlikely to translate into
significantly higher private consumption. As those receiving means-tested benefits (such as the Earned Income
Tax Benefit or the Supplemental Nutritional Assistance Program) find low wage jobs, their benefits are reduced.
Low-wage workers are using their newfound wages to make ends meet, not increase their consumption.
8.0%
8.2%
8.4%
8.6%
8.8%
9.0%
9.2%
9.4%
9.6%
9.8%
10.0%
10.2%
Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 Jul-12 Apr-13 Jan-14
%ofNonfarmPayrollJobsthatareManufacturing
Manufacturing/Total Payroll %
% of US non-farm payroll jobs in higher paying manufacturing sectors reached a record low in 2014
Source: Bloomberg, September 30, 2014
-1000.00
-800.00
-600.00
-400.00
-200.00
0.00
200.00
400.00
600.00
Jan-08 Nov-08 Sep-09 Jul-10 May-11 Mar-12 Jan-13 Nov-13 Sep-14
ChangeinJobs(thousands)
Non-farm Payrolls Monthly Change
US non-farm payrolls averaging over 200,000 new jobs per month

6
Year Ahead
Canada: Buoying effects of US growth alongside consumer debt and housing concerns
The Canadian economy will largely tag along with the US economic recovery in 2015. We expect Canadian
economic growth of 2.3% in 2014 and 2.7% in 2015 before decelerating to an average of 2.5% in 2016–18.
The Canadian dollar will likely weaken when the Fed hikes interest rates in late 2015/early 2016 and as oil prices
continue to fall. This will boost competitiveness, but in the absence of a revitalization of Canada’s industrial
base, the country will see its share of trade with the US diminish moderately over our five-year forecast period.
We expect Canada will be crowded out by the US’s southern neighbor Mexico expanding its manufacturing
capabilities as energy reforms likely reduce the costs of operating in the country.
We expect the Bank of Canada to hike rates in early 2016, after the US has raised its policy rate. This will restrain
private consumption over the forecast period, particularly as mortgage holders have more difficulty servicing their
mortgages at higher rates. Household debt as a percentage of personal disposable income has leveled off in
Canada, but at towering levels. There is a risk that the property bubbles in parts of Canada — particularly Alberta
and Ontario — will deflate as a result of tighter monetary policy. We expect government spending to expand
over the next year in the run-up to the general election scheduled for October 2015.
Eurozone: Without action, the region could face a lost decade
The Eurozone is the biggest drag on our 2015 global outlook. We expect the region to register very low
growth and inflation over our five-year forecast period — with average GDP growth of 1.4% in 2014–18 and
average inflation of 1.3%, well below the ECB’s target of just below 2%.
The approach to growth in the Eurozone has been for the weaker, peripheral countries — namely Greece,
Ireland, Portugal, Italy and Spain — to boost their competitiveness by cutting wages and pensions to
achieve an internal devaluation. Unit labor costs in most of the periphery have fallen relative to those
in Germany since the onset of the crisis in 2008, with Italy being the sole exception. The result has
been stronger net export growth in most of the periphery, alongside plummeting domestic demand.
Consequently, most of the periphery has experienced either outright recession or very low growth over
the past five years. As wages and pensions have been slashed, the weaker countries have also experienced
outright deflation or extremely low inflation.
The concentration of new jobs in low-wage sectors also suggests that wages will remain low for a
number of years. While unemployment in the US has fallen significantly to 5.8% in 2014 as at December
2014, wage growth has remained sluggish. Without upward pressure on wages, we expect inflation to
remain weak as well. The Federal Reserve (Fed) will, therefore, see its two mandates — employment and
price stability — moving in opposite directions. In our view, the Fed will maintain a low policy rate despite
growing employment through 2015, hiking rates only in early 2016.
The greatest risks to economic growth in the US are external. With the Bank of Japan (BoJ), the European
Central Bank (ECB), the Bank of England (BoE) and the People’s Bank of China (PBOC) all expanding
their balance sheets over the next few years, the US dollar is likely to appreciate relative to the yen, euro,
sterling and renminbi. The world’s other major economies will all be engaging in the same beggar-thy-
neighbor strategy, and the US will likely face headwinds as a result. Net exports are expected to remain
subdued with a strong US dollar.

7
Year Ahead
More recently, the Eurozone’s woes have spread from the periphery to the core of the region. Germany
— Europe’s growth engine since the 1990s — is now seeing growth and inflation flag. German industrial
production, new factory orders and exports saw contractions or weak growth in the third quarter of 2014.
This is partly due to a slowdown in one of Germany’s main trading
partners, China, as well as the imposition of sanctions on Russia. It
is also the result of low demand in countries like France and Italy,
which have not implemented the necessary structural reforms to find
a sustainable growth model and are consequently importing fewer
German goods and services.
The crux of the problem is indigenous to Germany though;
Germany has long been reliant on exports for growth, with a high
national savings rate and low levels of domestic investment. This
has been evident in Germany’s persistent current account surplus
over the past decade. As long as the peripheral countries in the
Eurozone must undergo massive adjustments without Germany adjusting alongside them — namely by
boosting domestic investment — we expect German economic growth to remain sluggish. Unfortunately,
the German government is unlikely to change its approach to growth in Germany or in the greater
Eurozone over the forecast period. As a result, we expect continued economic weakness, low inflation
and fiscal consolidation across the region.
The ECB has committed to expanding its balance sheet by around 1 billion euros over the next two years.
It aims to do this by purchasing covered bonds and asset-backed securities. In our opinion, not enough of
these instruments exist for the ECB to hit its balance sheet target, and consequently the central bank will also
purchase corporate loans. We do not expect the ECB to purchase sovereign debt, as Germany is staunchly
opposed to it and sovereign bond yields across the Eurozone are low relative to fundamentals.
Credit easing by the ECB will buy policymakers time to implement difficult structural reforms. In our view,
Eurozone policymakers only push through difficult reforms when their feet are held to the fire, so the window
of opportunity may close before any meaningful reforms take place. Still, the ECB’s measures will likely cause
the euro to depreciate relative to the US dollar, which will improve the region’s external competitiveness.
In our view, Eurozone
policymakers only
push through difficult
reforms when their
feet are held to the
fire, so the window of
opportunity may close
before any meaningful
reforms take place.

8
Year Ahead
The Eurozone periphery trying to follow Germany’s lead
Throughout the crisis, the Eurozone has seen public debt to GDP increase despite fiscal retrenchment
across the region. This is particularly a problem in the periphery of the region. Low growth and low
inflation will make it even more difficult for Eurozone countries to stabilize their massive public debt
burdens. Beyond our five-year forecast period, we expect there will be a debt conference in the Eurozone
in which the net present value of public debt for Greece, Ireland, Portugal, Italy, Spain and France will be
written down, most likely through a rescheduling of debt. This is not currently priced into the markets,
but could be a hugely disruptive event.
UK: Economic rebalancing tabled as robust growth continues
The UK has outperformed the Eurozone in recent years, aided by its separate central bank, the Bank of
England, which has conducted a significant amount of quantitative easing to reflate asset prices since the
onset of the crisis. We expect the UK economy to grow by 3.1% in 2014, 2.8% in 2015 and an average of
2.5% in 2016–18.
The recovery in the UK has been largely consumer-led, with robust retail sales figures and a frothy property
market. In the immediate aftermath of the global financial crisis, Westminster talked of rebalancing the
economy away from a growth model reliant on domestic demand and financial services towards one based
on manufacturing and exports. Very little progress on this major rebalancing has occurred, and the chances of
it happening dwindle the closer we get to the May 2015 general election.
An easy monetary policy by the Bank of England will cause the pound sterling to depreciate relative to the US
dollar, which should support export growth. Having missed its inflation target of 2% in the third quarter of
2014, we expect the Bank of England to keep its policy rate at 0.5% until after the general election. When
interest rates do rise in late 2015, it will likely restrain private consumption — particularly as a number of
mortgage holders have difficulty servicing their reset mortgages.
0
5
10
15
20
25
30
Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13
Savingsas%ofGDP
Germany Spain France Italy Greece

9
Year Ahead
Japan: Abenomics severely tested
In Japan, Abenomics — Prime Minister Abe’s three-pronged policy approach to increasing the country’s
potential growth rate — continues to be severely tested. The platform’s first two arrows, fiscal and
monetary stimulus, have already been implemented and have been fairly successful in generating some
inflation and growth. But in our opinion, the third arrow of structural reform is the most critical. We
expect growth in Japan to be muted over the forecast period, reaching 0.3% this year, 0.8% in 2015 and
an average of 1% in 2016–18.
Prime Minister Abe hiked the consumption tax rate from 5% to 8% in April 20142
. Consumption
subsequently declined more than expected, leading the economy to fall into a recession (GDP contracted
by 1.9% quarter-on-quarter in the second quarter and by 0.4% in the third quarter). Mr. Abe was under
significant pressure to raise the tax rate in order to collect more tax revenues and try to stabilize Japan’s
staggering public debt burden. The tax rise has had a much longer-lasting impact on Japanese real incomes
than the government expected. Retail sales growth has been sluggish and consumer confidence has been
low since the third quarter of 2013. Mr. Abe called a snap election for December 14th
to gain a mandate to
delay the next consumption tax hike (to 10%) from October 2015 to April 2017 at the earliest.
Japanese retail sales dropped after April 2014 consumption tax hike
In the third quarter of 2014, the BoJ announced further monetary easing, which we expect will cause the yen
to continue to depreciate. Unfortunately a weaker yen has not translated into greater net export growth. This
is partly because many Japanese companies have moved their production offshore and so are not benefitting
from a weaker yen. It is also likely a result of a loss of competitiveness of Japanese firms globally.
While a weaker yen could foster net export growth at the margins over the forecast period, it is also likely to
cause a drag on the Japanese economy as offshore companies delay the repatriation of profits.
Changeinlevelofretailsalesyoy(%)
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14
Japan Retail Sales YoY% April 2014 Tax Hike
2
http://www.bloomberg.com/news/2013-10-01/abe-proceeds-with-japan-s-first-sales-tax-increase-since-1997.html

10
Year Ahead
With the first two arrows of Abenomics stalling, the jury is still out on the third arrow: structural reform.
Last June, the government announced a detailed list of structural reforms, without much in the way of
implementation plans or deadlines. We anticipate the government will
mainly rely on cutting the corporate tax rate from around 35% to just below
30% to entice businesses back to Japan. However, we do not expect this tax
cut to be a game-changer in boosting Japan’s potential growth.
One key reform Mr Abe should focus on is increasing female participation
in the labor force. The current rate is very low and given Japan’s shrinking
population, improving female employment rates would create some much
needed demand in the Japanese economy.
In the absence of significant structural reform, we expect Japan to pursue a
beggar-thy-neighbor strategy, with the government providing fiscal stimulus
and the central bank continuing to ease as the yen depreciates. This is not a sustainable growth model, and we
expect Japan’s economy to remain sluggish and its debt burden to continue to rise in 2014–18.
Without
substantive
structural reform,
it’s tough to see
Japan finding
sustainable
growth over the
next few years.
Given that China is the
largest economy in
the world, a growth
slowdown will draw
significantly from
global demand and
will create a headwind
for the global outlook.
China: Good short-term growth but more focus needed on consumption and productivity
We expect better news in Asia Pacific will come from China in 2015. Overall, we are fairly sanguine about
Chinese growth in the short term, expecting GDP growth of 7.1% for 2014, 6.9% for 2015, and an
average of 6.4% in 2016–2018.
The Chinese growth model over the past decade has been reliant on credit and investment. Private debt to
GDP has risen significantly since the beginning of the global financial crisis, from 117% in 2008 to 192% in
20143
. The stock of private debt is worrisome, but the flow of private debt is an even greater concern; it has
accumulated rapidly despite robust GDP growth over the past few years. The current Chinese leadership is
committed to shifting the growth model towards consumption and higher productivity.
Two bubbles have emerged in the Chinese economy: one in the
property market and the second in the banking sector, as local
government financing vehicles have many non-performing loans
(NPLs) on their books. The government is trying to deflate the property
market and coax the banks to write down some of their NPLs.
The Chinese government has more tools to achieve this than most
governments; macroprudential regulations can be used to cool off the
property market, the government owns all the banks, and the ministry
of finance has not levered up significantly over the past few years and
consequently has a relatively clean balance sheet.
The Chinese government aims to drive employment rather than profits; a significant rise in unemployment
would result in social unrest, which the Chinese government is keen to avoid. As a result, it is likely the
government will use these various tools to maintain growth of around 7% in 2015.
As long as the Chinese leadership is intent on maintaining such robust growth, it will have to prop up
investment growth, and consequently will not be guiding the economic growth model towards consumption
and productivity improvements. We saw the limits of Beijing’s tolerance for an economic slowdown in
3
Source: Bloomberg. As at December 2014.

11
Year Ahead
November 2014 when the PBOC announced monetary easing, which will, among other things, help prop up
the property market. This is an unsustainable growth model, and we expect Chinese growth to slow towards
6% at the end of our forecast period.
Given that China is the largest economy in the world, a slowdown to 6% over the next five years will draw
significantly from global demand and will create a headwind for the global outlook, particularly for countries
reliant on commodity exports to China for growth.
We expect that the PBOC will engage in targeted monetary easing, particularly in the event of city or regional
government or property owner defaults. While the renminbi is not a free-floating currency, this could
translate into a depreciation of the currency. China, like many other economies, may therefore also engage in
a beggar-thy-neighbor growth strategy over the forecast period.
Emerging Markets: A mixed bag
When the Fed announced it would start to taper its asset purchases in 2013, it caused a “taper tantrum” as
investors pulled capital out of the Emerging Markets. Once the US raises rates in 2016, followed eventually
by the UK and later still the Eurozone, we expect capital will flow out of Emerging Markets, but we do not
expect a repeat of the crisis we witnessed in the 1990s.
Countries with large external financing needs will feel the most pressure. Most Emerging Markets have
stronger current account positions, larger currency reserves and less public debt than they did in the 1990s,
so are better placed to weather any kind of monetary tightening by the Fed and other central banks.
Russia is currently an area of particular focus for investors. We expect the Russian economy to contract by
0.5% in 2014 and 0.6% in 2015 and grow by an average of 2.4% in 2016–18. Russian businesses are facing
a credit crunch as a result of sanctions imposed by the US and Europe. Businesses are having difficulty rolling
over external debt, and there is a chance that President Putin will allow them to default on this debt to leave
the West with the bill. More likely, we expect the Russian government will step in and buy corporate debt.
While the sanctions have had some impact on the Russian economy, the falling price of oil has had a much
larger impact. We expect oil prices to remain low in the first half of the forecast period. Tensions between
Russia and the West will remain over the next five years, but we think an all-out conflict will be avoided given
the West and Russia’s shared reliance on oil and gas.
Brazil faces significant macroeconomic challenges going forward. Dilma Rousseff won re-election in Brazil
in October 2014, but by a very small margin, making it more challenging for her government to implement
badly needed structural reforms. We expect Brazil to roughly stagnate in 2014 and grow by 1% in 2015 and
by an average of 3.3% in 2016–18.
A notable bright light among Emerging Markets is India. India has run counter to the global business cycle,
with interest rates now higher than in 2008 and a currency that is appreciating relative to the US dollar. India
is on the brink of a significant cyclical upswing. Commercial light vehicle sales, a good indicator of Indian
production, have been soaring over the past six months. The coal production index has improved in 2014 as
well. India’s current account balance has also improved significantly as gold imports have diminished and the
price of oil has fallen. We expect inflation to remain under control through the first half of the forecast period
and believe the rupee is undervalued on a real effective exchange rate basis. India also stands to benefit from
new Prime Minister Narendra Modi’s focus on eradicating corruption and improving transparency. We expect
India to grow by 5.5% in 2014, 6% in 2015 and an average of 6.3% in 2016–18.

December 201412
Year Ahead
Global Fixed Income
MARKET OUTLOOKS
Opportunities to be found in ﬁxed income in 2015
Tom Goggins, Senior Portfolio Manager, Global Multi-sector Fixed Income
In 2015, the US will likely continue to be the developed market outlier from a global growth standpoint,
growing in a range of 2.5–3%. To reach that level, the US will need to continue to add jobs in the range of
200,000+ per month. We’ll be looking to hear words from the Federal Reserve (Fed) like “self-sustaining” to
describe the economic recovery. That will indicate the economy is back on a solid track and can sustain the
level of growth with no headwinds on the horizon.
At that point we also expect to see the Fed embark on a policy of normalizing rates. Other countries,
especially Europe, Japan and some other developed markets will not be ready to raise rates, so the interest
rate differential between the US and those countries will likely cause the US dollar to move higher. If US
economic data continues to improve, we expect rates will move higher on the 10-year to the range of 2.6–3%.
We think global growth will be positive
with the US and China in the lead.
The Fed will begin raising rates
when it believes the recovery is “self-sustaining,”
likely sometime in the second or third quarter.
GDP Growth
+ Q2/Q3
Other countries may not be ready to raise rates,
so the interest rate differential would cause
the US dollar to strengthen against all currencies.
It will be important for Japan, Europe and emerging
countries in Latin America to make progress
with much-needed structural reforms in 2015.
$
USUS
REFORM

13
Year Ahead
Economic growth in Asian countries has slowed down to a range of 3–7%, which still looks decent. China
will continue to be the regional leader with GDP growth closer to 7%. As China transitions from an export-
to a consumer-based economy, it will grow at a slower rate than in years past. But we expect this rate to be
more sustainable because it will be based on domestic, rather than foreign demand.
Structural reform progress needed to regain market confidence
To regain the confidence of investors, it will be important for Japan,
Europe and emerging countries in Latin America to make progress with
needed structural reforms in 2015. Within Japan, we’ll be looking to
see if progress is made with the third arrow of Abenomics — a reform
program aimed at making structural improvements to the Japanese
economy.
Europe is still a work in progress, and we think its economic downturn is
in the midst of bottoming out. The region is heading towards a solution;
however, it will likely take a few more years to get the governments of
member countries on the same page to implement structural reform and
the European Central Bank may need to implement quantitative easing
efforts similar to the Fed’s in the US to help the region spur necessary
growth and improve inflation expectations.
We think we are in
the midst of a multi-
year uptrend for the
US dollar; it will be
important for investors
in foreign markets to
understand the impact
that a rising US dollar
will have on their
investments.
Currencies: Multi-year uptrend for the US dollar vs. all global currencies
We think we are in the midst of a multi-year uptrend for the US dollar. It will be important for investors in
foreign markets to understand the impact that a rising US dollar will have on their investments.
US dollar in the midst of a multi-year upward trend
Source: Bloomberg, September 30, 2014.
USdollarvalue
74
76
78
80
82
84
86
88
Sept-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14
US Dollar Index

14
Year Ahead
We expect the US dollar to strengthen against most commodity currencies, including the dollars of Australia,
New Zealand and Canada. Developed market currencies, including the euro, Swiss franc and yen will also
weaken versus the US dollar. Emerging Markets with current account deficits, such as India, South Africa,
Indonesia and Turkey, could see their respective currencies weaken as they are more reliant on foreign
investment to fund their liabilities.
Fundamentally stronger Asian currencies might also weaken versus the US dollar but will likely still
outperform relative to the other currencies. In Latin America, the Brazilian real will likely weaken slightly
more than Mexico’s peso, but Brazil’s interest rate differential will insulate its currency to some degree
against the impact of rising rates in the US.
We expect the Canadian dollar to weaken against the US dollar, as well as Asian and Latin American
currencies, but think it could do better than some other commodity currencies (including the Australian and
New Zealand dollar) and possibly better than the euro, yen and Swiss franc. We expect the Canadian dollar
will trade in the range of C$0.80–0.85 in 2015.
High-yield debt looking attractive from a relative value standpoint
We expect the yield curve will steepen when rates start to rise in mid- to late 2015. However, our strategy is
to position our portfolios in order to maximize the potential to make money whether rates go up or down.
We’re not expecting to see much price appreciation in high-yield securities in 2015; we expect the coming
year will be about clipping the coupon. US high-yield companies have strengthened their balance sheets,
default rates should remain low, and we expect the total return for high-yield securities will likely be around
5%, which will look attractive from a relative value standpoint globally.
Playing defense
Investing in high-yield corporate bonds in 2015 will be about playing defense — avoiding out of favor
industries, companies or industries with too much leverage and poorly managed companies. We have
reduced our exposure to cyclical sectors in favor of defensive sectors such as healthcare and utilities, and have
moved out of CCC-rated securities, using some of those proceeds to increase our allocation into bank loans.
We will continue to focus on corporate credits, primarily in the US, but we will also look to Emerging
Markets. Within credit, we see opportunities in investment grade, below investment grade, bank loans,
convertibles, and preferred debt in the US.
Emerging Market debt – focusing on fundamentally stronger countries
In terms of Emerging Market debt, we are looking to invest in fundamentally stronger countries. It will be
important to avoid overreaching for yield and we’ll continue to avoid investing in bonds from countries
with weak fundamentals, bad liquidity, geopolitical risks or a history of treating bond holders poorly (e.g.,
Argentina, Venezuela, Russia and Ukraine). We will also continue to avoid countries that need to fund their
current account deficits in US dollars (e.g., South Africa and Turkey) because these countries will be the most
vulnerable to rising rates in the US.
The Philippines is an example of an Emerging Market that has the fundamentals we’re looking for — an
improving credit story, a consistently improving debt to GDP ratio, good fiscal positioning, a current account
surplus, a strong level of currency reserves and a high level of economic growth. The Philippines has already
seen upgrades in its credit ratings, and we think that will continue to be the case going forward.

December 201415
Year Ahead
North American Fixed Income
Yield curve to steepen with US and Canadian rate rise in late 2015
Hosen Marjaee, Senior Portfolio Manager, Canadian Fixed Income
We expect continued growth in North America in 2015, with the US economy expanding around 3% and
Canada’s following suit at around 2.3–2.5%. We are expecting inflation will stay tame at just below 2%
for both countries.
US dollar strengthens as investors flock to currency safe haven
The US dollar strengthened in the second half of 2014 against all major currencies, mainly due to ongoing issues
in countries around the world. The economy in Europe is weak, China is growing but at a slower pace than
previously, and Japan is having difficulty trying to reignite its economy through Abenomics. These challenges —
along with geopolitical events such as the continued standoff between Ukraine and Russia, issues in the Middle
East and recent protests in Hong Kong — are weighing on investors’ minds. This is prompting many to avoid
these hot spots and move their investments to the US, resulting in a strengthening US dollar.
US$
US +3%
CANADA +2.3-2.5%
GDP Growth
%CANADA
%US Q3
Canada to lag US...
%
BoC
We expect continued growth in North America
in 2015, with the US economy expanding around
3% and Canada’s following suit around 2.3–2.5%.
As the US dollar strengthens, imports will come
into the US at lower prices, keeping US inflation down.
This means the Federal Reserve (Fed) could delay
raising rates until at least Q3 2015.
The US dollar will likely strengthen further,
as global investors continue to view
it as a safe haven.
To support exports and avoid having the Canadian
dollar strengthen against the US dollar, the Bank
of Canada’s interest rate hike is likely to lag the Fed’s.

16
Year Ahead
Strengthening US dollar to keep inflation down, possibly delaying
Fed rate hike until late 2015
As investors continue to flock to the US because of its relatively promising economic outlook and “safe
haven” status, the US dollar is likely to continue to strengthen in 2015. That means imports will come into
the country at lower prices, keeping inflation down and supporting our expectation that the Fed will start
raising rates by a 25bps hike in the third quarter of 2015. Following that, we think it will likely raise rates by
another 25 bps before the end of the year.
Looking for signs of wage growth to increase
consumer spending
One risk to North America’s economic rebound is the quality of jobs being created. While the US will likely
continue to add 200,000 jobs per month — keeping the unemployment rate just below 6% — the jobs likely
won’t be as well-paying as in the past. So far, we’ve seen very little wage growth in the US or Canada. If
wages start going up, it will be a good sign that the consumer will be in better shape financially and will be
able to spend a bit more money.
Canada: Wage growth not keeping pace with inflation
Source: Bloomberg, October 31, 2014.
Unitlaborcost
Inflation
106.00
107.00
108.00
109.00
110.00
111.00
112.00
113.00
114.00
115.00
3.5
0.5
1.0
1.5
2.0
2.5
3.0
Core CPICPIUnit labor cost
Dec2010
Dec2011
M
ar2011
Jun2011
Sept2011
Dec2012
M
ar2012
Jun2012
Sept2012
Dec2013
M
ar2013
Jun2013
M
ar2014
Jun2014
Sept2013
Sept2014

17
Year Ahead
%changeinunitlabourcosts
Inflation
0.0
1.402.0
1.60
4.0
1.80
6.0
2.00
8.0
2.20
-2.0 1.00
1.20
Unit labour cost Inflation (CPI)
Dec2009M
ar2010
Dec2010
Dec2011
Jun2010Sept2010
M
ar2011Jun2011Sept2011
Dec2012
M
ar2012Jun2012Sept2012
Dec2013
M
ar2013Jun2013
M
ar2014Jun2014
Sept2013
Sept2014
US: Wage growth and inflation flat since start of recovery
Source: Bloomberg, November 17, 2014.
US: Opportunities as yield curve steepens; corporate bonds still look favorable
We see a number of fixed income opportunities once the Fed starts to raise rates. At that time, the front end
of the yield curve will tend to move up a lot faster than the long end. That could provide an opportunity to
redeploy assets from the front end to the long end, while maintaining a short duration. We expect the rates
on the 10-year US bond to increase by 50 bps next year.
We still like corporate bond yields. The spread for US corporates is around 450 bps against US government
bonds. As long as spreads stay in the mid- to high-400s, we think they offer good value and are a good place
to deploy new money. If spreads fall below 400, we’ll become more cautious.
Canada to lag US in raising rates, maintaining a lower Canadian dollar
Canada is expected to lag the US in raising rates because its economy is weaker. If the Bank of Canada raises
rates before or on pace with the Fed, it will increase the interest
rate differential between the two countries. This is likely to cause
the Canadian dollar to strengthen, which will weaken exports
and manufacturing. We expect Canada will only raise rates once
or twice next year, after the US does.
We don’t see the Canadian dollar strengthening much in 2015
from its current levels. We expect it will trade in the range of 1.17
to 1.10 versus its US counterpart in 2015, likely trading in the
lower end of the range. As the Canadian dollar weakens against
the US dollar and some other currencies, importing goods will
become more expensive, which could create some inflation.
Canada is expected to
lag the US in raising rates
because its economy is
weaker. If the Bank of
Canada raises rates before
or on pace with the US, it
will increase the interest
rate differential between
the two countries.

18
Year Ahead
The impact of a decelerating Chinese economy and lower oil prices
Any continued slowdown in the pace of economic growth in China is likely to impact Canada in terms of
lower demand for commodities. We are slightly concerned about the impact of lower oil and energy prices
on the energy producing provinces. Alberta, Saskatchewan and BC are in great shape financially, with a low
debt to GDP ratio, but as oil prices go down, these provinces will collect less royalties.
Canada: Opportunities in investment grade corporate and provincial bonds
from Ontario and Quebec
In a rising rate environment, we expect the rates on the 10-year Canadian bond to go to 2.50% in 2015,
which will be an opportunity to make money on a longer duration strategy.
In Canada, our investments in corporate debt are mostly in the investment grade category. The high-yield
market in Canada is small and not very liquid, so we prefer to invest in the US high-yield market. The
spread on Canadian investment grade bonds over Government of Canada bonds is fairly wide at 115 to
120 bps. As long as the Canadian economy is growing and companies continue to make money, the risk
of default on investment grade corporates is present but not amplified.
Within Canadian investment grade debt, we think there is still opportunity to take advantage of wider
spreads on some provincial bonds, specifically Ontario and Quebec, which yield more than 85 bps over
Government of Canada bonds. As the Canadian economy continues to grow at a rate of 2.3–2.5%,
revenues for provincial governments will grow and their budget deficits will fall. Provincial governments
are also working on balancing their budgets, which will have a positive impact on provincial bonds.
Possible short-term market reaction to Canadian federal election in 2015
There will be a Canadian federal election in 2015. The current Conservative government is committed
to balancing the budget and is on track to create a budget surplus, some of which is being used to help
Canadians reduce taxes. As the election approaches, this will likely continue. If taxes fall, Canadians will
have more money to spend and there could be an increase in consumer spending. If a non-Conservative
government wins the election, the market might react as it tries to determine the policies the new
government will put in place.

December 201419
Year Ahead
Japanese Fixed Income
2015: A year of countervailing forces?
Takeshi Kanamaru, Portfolio Manager, Japanese Fixed Income Investment
Expanded Quantitative Easing boosts markets
As the fourth quarter of 2014 dawned, Japan’s fixed income market saw two significant surprises. First,
the Bank of Japan (BoJ) decided to significantly expand its Quantitative Easing (QE) program, pledging to:
■ Expand the monetary base by 80 trillion yen per annum (an additional 10-20 trillion yen per annum).
■ Increase Japanese Government Bond (JGB) purchases to 80 trillion yen per annum (an additional 30 trillion
yen per annum).
■ Extend the maximum maturity of JGB purchases to 10 years.
■ Increase exchange traded fund (ETF) and Japanese real estate investment trust (J-REIT) purchases to 3
trillion yen and 90 billion yen per annum, respectively (each to triple).
Expected 2015 GDP growth in Japan of 0.8%.
Election in mid December 2014 served
as a referendum on the future of Abenomics.
Current accommodative monetary policy from
Bank of Japan is likely to continue over the long term.
Next consumption tax hike will be closely watched.
TAX HIKE
GDP Growth
+0.8%

20
Year Ahead
Immediate market reaction was similar to that which followed the initial QE launch under BoJ Governor
Haruhiko Kuroda in the spring of 2013, with the yen depreciating, stock prices climbing and JGB yields
falling alongside the yield curve ﬂattening.
Election as a referendum on Abenomics and tax hike delay
The second surprise came close on the heels of the ﬁrst, with Prime Minister Shinzo Abe announcing his
intention to suspend a second consumption tax hike planned for 2015, dissolve parliament and hold a
snap election — an unexpected move as the market widely believed that Abe and the BoJ had essentially
reached a policy accord under which the BoJ expanded QE in return for Abe’s pledge to go ahead with
the second tax hike in October 2015. The election was essentially a referendum on Abenomics and the
postponement of the second tax hike.
QE and tax hike are countervailing forces
As illustrated by Japan’s disappointing second- and third-quarter GDP growth of -7.1% and -1.6%
respectively, the 3% consumption tax hike implemented in April 2014 had a severe impact and forced
policymakers in Tokyo to lower their economic projections. While the BoJ decision to expand QE is likely
positive for the wider economy, the problem is that the two policies clash in essentially the same way as
putting one foot on the gas pedal (expanding QE) and the other on the brake (hiking the tax). Indeed,
even if the second tax hike is postponed to April 2017 from October 2015, it is still likely to come as a
blow to the economy and at minimum would likely require another round of QE support from the BoJ.
Downward pressure on JGB yields to continue
Against this backdrop, JGB yields are likely to continue to see downward pressure on the back of massive
JGB purchasing. The BoJ decided at its end of October board meeting to not only increase the quantity of
buying (i.e., larger amounts) but also the quality (i.e., longer maturities). As for the timing of a potential
QE exit, we can only speculate that this has been delayed due to the sharper-than-expected economic
downturn following the April 2014 tax hike, suggesting that current accommodative policy will continue
over the longer term.

21
Year Ahead
540
538
536
534
532
530
528
526
524
522
520
2013/4-6
2013/7-9
2013/10-12
2014/1-3
2014/4-6
2014/7-9
2014/10-12
2015/1-3
2015/4-6
2015/7-9
2015/10-12
2016/1-3
ESP Forecast Survey as of Jan 2014 ESP Forecast Survey as of Nov 2014Actual Value
Two consecutive quarters of disappointing
GDP growth followed the April 2014 tax hike.
The third quarter was a particularly significant
miss, roughly equivalent to 1% of real GDP.
Real GDP misses forecast estimate after April 2014 consumption tax hike
Note: *ESP Forecast Survey of professional forecasters in Japan.
Source: Japan Center for Economic Research, Manulife Asset Management

December 201422
Year Ahead
Asian Fixed Income
Continued focus on credit
Endre Pedersen, Senior Managing Director, Asian Fixed Income
Asian economies laying foundations for growth in 2015
Asian ﬁxed income markets have held up relatively well during 2014 in comparison to developed markets,
with benchmark yields in both the US and Europe remaining low as the US Federal Reserve (the Fed) and
European Central Bank (ECB) continue to pursue accommodative monetary policy. Year-to-date, local-
currency Asian bonds have returned 5.7%, while hard-currency (ie, US-dollar-denominated) Asian bonds
have returned 8.1%4
.
4
HSBC Asia Local Bond Index, JP Morgan Asia Credit Index; Bloomberg, 31 October 2014.
ASIAN
CORPORATE
BOND
$
Chinese GDP expected to continue
to grow at around 7% in 2015.
We will continue to focus on corporate bonds
in Asia, favoring US dollar-denominated bond.
Further economic stimulus in China is possible in
2015 if economic growth is below expectations.
We are keenly aware that higher interest rates
in the US in 2015 remain a clear possibility
+7%
GDP Growth
US

23
Year Ahead
The US economy continues to stand out in comparison to Europe, with GDP forecast rising to 2.5–3.0%
in 2015. Despite more robust growth and unemployment falling below 6.0%, the US Federal Reserve
(Fed) is unlikely to raise interest rates quickly. We expect a hike in rates during the second half of 2015, in
conjunction with rising US Treasury yields. The Eurozone outlook is more challenging; GDP is expected to
rise to 1.7% in 2015, up from 1.0% growth in 2014, according to European Commission forecasts, but
recovery in the region remains somewhat fragile.5
At the same time, the Chinese economy is expected to continue its transition to a more sustainable
growth path and avoid a significant slowdown, with the GDP forecast remaining around 7.0% for 2015.
Additional targeted economic stimulus is possible in 2015 if economic growth falls short of expectations.
Meanwhile, the Indonesian economy should remain buoyant as a result of domestic consumption
growth and a growing middle class. President Joko Widodo’s plans to streamline his government and
the efficiency of state-owned enterprises are also positive. In addition, India is expected to release a
new monetary policy framework at the end of 2014 or early 2015. Any changes to monetary policy and
inflation targets are likely to influence the direction of domestic interest rates going into the new year.
Potential headwinds
We are keenly aware that the likelihood of higher US interest rates in 2015 remains a clear possibility. In
particular, if we were to experience a rapid rise in interest rates and concurrent higher US Treasury yields,
we could witness outflow from Asian bond markets, though this would not likely be on the same scale as
that witnessed in the “taper tantrum” of 2013. Meanwhile, continued slowing of the Chinese economy
would likely have a spillover effect on other Asian economies
and could negatively impact Asian corporates — a situation that
would further highlight the importance of careful credit analysis
when investing in Asian markets. Finally, geopolitical events in
Ukraine and the Middle East and border disputes within Asia
remain isolated risks but nevertheless cannot be ignored.
Opportunities in corporate bonds for investors seeking
to limit interest rate risk
We continue to believe that the key to generating positive investment returns in Asian bond markets in
2015 is to continue to focus on credit to position appropriately for a potential rise in interest rates. In
the year ahead, we believe investors should consider maintaining a relatively short interest rate duration,
overweighting carefully selected credit issuances which offer higher spreads — including sub-investment
grade or high-yield credit — and favoring hard currency bonds.
Maintaining a short interest rate duration is one reason corporate credit may offer particular opportunities
in the year ahead, as sovereign bonds tend to be of longer duration and are thus more sensitive to
interest rate movement. Selective exposure is key and we are positive on selective Chinese property
and Indonesian corporates. Offshore — CNH-denominated or “dim sum” — corporate bonds also offer
relatively high yield and low volatility, in addition to portfolio diversification.
Continued slowing of the
Chinese economy would
likely have a spillover
effect on other Asian
economies and could
negatively impact Asian
corporates.
5
European Central Bank, June 2014.

24
Year Ahead
0
2
4
6
8
10
12
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
YieldtoMaturity(%)
JACI investment grade corporates yield to maturity
The BofA Merrill Lynch US corporate index yield to maturity
Asian corporate credit also delivers higher-than-average yields when compared to sovereigns and
developed world credit with equivalent ratings — investment grade corporate bonds in Asia currently
deliver 4.0% yield versus 3.1% for investment grade corporate bonds in the US.6
This is because Asian
bonds generally carry an “Asia premium” to offset investor perception of higher risk in Asian markets.
Asian corporate bonds carry an “Asia premium” over US corporate bonds
Source: JPMorgan Asia Credit Index, Bank of America Merrill Lynch US Corporate Index, Bloomberg, October 31, 2014.
Within interest rate markets, Australian 10-year government bonds currently offer the highest AAA-rated
yield7
. We also favor Indonesian government bonds as diversiﬁcation plays that also offer attractive yield.
Asian currencies to perform strongly relative to other developed
and emerging market currencies
In currencies, while we expect the US dollar to remain strong, we also see Asian currencies performing
strongly relative to other developed and Emerging Market currencies. We continue to believe in a
moderate appreciation of the renminbi in the mid to long term and as such remain constructive on
renminbi-denominated bond markets. With US Treasuries expected to rise, we are more cautious about
safe haven markets such as Hong Kong, Singapore and Taiwan and are positive on Indonesia, where we
see potential for good returns.
6
JP Morgan Asia Credit Index and Bank of America Merrill Lynch US Corporate Index; Bloomberg, October 31, 2014.
7
Bloomberg, October 31, 2014

December 201425
Year Ahead
Emerging Market Debt
Reigniting the embers of economic reform
Paolo Valle, Senior Portfolio Manager, Manulife Asset Management
Roberto Sanchez – Dahl, Senior Portfolio Manager, Manulife Asset Management
Unprecedented number of elections sets stage for progress in 2015
It’s rare in the investment world to be able to describe an event or series of events as truly “unprecedented”
but in many ways that is the only way to describe the electoral change we have seen in Emerging Markets
in the past year. 2014 saw in excess of 22 presidential and parliamentary elections in Emerging Markets
including India, Indonesia, Turkey, South Africa and Brazil.
This heavy electoral calendar left many of these economies in a state of political paralysis with incumbent
governments unable to pursue economic structural reforms until the elections had passed. Now that the dust
is settling and governments have the necessary mandates to pursue reforms, we believe that these countries
will be reigniting the embers of economic and structural reforms.
+4.5%
REFORM
GDP Growth
4.5% average anticipated GDP growth
in Emerging Markets (EMs) in 2015.
Signs of a reinvigorated economic reform
agenda in 2015 will be crucial to the
long-term health of EM economies.
2014 saw more than 22 elections in EMs, temporarily
putting economic and political reform on hold.
Mexico, Poland and China are among the
economies we expect to be well-placed to
withstand a global economic slowdown.
2014
Poland
China
Mexico

26
Year Ahead
However, having navigated the heavy political calendar, it is not all plain sailing for Emerging Markets. With
global growth looking less assured, concerns are rising about the impact
of weakness in the global economy on Emerging Markets.
Structural reform more important than ever
Two key issues — the political drive to continue reforms and the global
economic outlook — are more intertwined than many realize. The pace
of economic structural reform is an important bellwether for how well
individual Emerging Markets will withstand global economic weakness,
both now and in the future.
Economies that have done their homework over the years implementing
structural reforms are likely to have a greater range of policy tools at their disposal to respond to a global
economic slowdown. Markets that have their finances in order — such as Mexico, Colombia and Peru — will
be better able to increase their spending and cut taxes if necessary. In the case of Eastern Europe, Poland
should be able to show the progress they have made in economic reforms over the years. In Asia, we expect
countries like the Philippines, Singapore and China are likely to have greater flexibility to implement policy
response. Overall, we anticipate growth for next year in Emerging Market economies to average around 4.5%.
Particular opportunities in Mexico and Poland
One of the countries in which we see particular opportunity is Mexico. It has already approved and
in some instances implemented relevant structural reforms to its pension system among others, and
more recently to its telecommunications and energy sectors. They have a healthy financial system and
the economy is particularly open to private sector and foreign investment. We also believe that its
geographical proximity to and economic links with the USA are likely to cushion Mexico to some degree
in the event of a global economic slowdown. We think Poland is another country to watch. It became
a member of the European Union in 2004 and has implemented key structural reforms and opened
its economy to foreign direct investment. Meanwhile, its strong economic and commercial links with
Germany should also support continued economic growth.
Much has been made over the last year about the potential for economic weakness in China. In spite of
many market watchers’ concerns about a potential hard landing, we think that the country’s economic and
financial situation is manageable in the medium term. We believe China has enough financial resources and
fiscal flexibility to implement an effective policy response to support the economy. China is in the process
of rebalancing its traditional economic model towards growth in domestic demand from households and
away from export-driven growth, which should provide some degree of protection from the worst effects
of any global slowdown.
In short, the global economy seems to have some challenges ahead and an upward growth trajectory is
by no means assured. 2015 is not a year to access the market indiscriminately and simply get beta. It will
be about discerning the Emerging Markets that are likely to be the most resilient in the current economic
environment and avoiding weaker markets that may struggle to push through the longer-term reforms
needed to put their economies on a surer footing.
Key to gauging
the outlook for
Emerging Markets
will be the speed
and vigor with
which they are
able to reignite the
reform touchpaper.

December 201427
Year Ahead
Global Equities
2015 to provide clarity on Quantitative Easing’s ability
to boost the global economy
Wendell Perkins, Senior Portfolio Manager, International Equities
The outlook for global growth in 2015 is uneven and subject to further downgrade as many of the
world’s largest economies continue to struggle. We are likely to see disappointing economic growth in
Japan, Brazil, China and the Eurozone.
When one looks at expectations for 2015, it seems like we will have another subpar year of growth in the
Eurozone, probably around 1%, which is below the consensus expectation of 1.3%. At the end of 2014,
the outlook for economic activity and earnings in the region was weak — Italy fell back into a recession,
France clung to positive growth, and Germany’s economy had completely stalled.
While we will likely finish 2014 with positive earnings per share (EPS) growth, market expectations of
double-digit earnings growth in 2015 seem unrealistic given recent subpar economic activity. From our
One of the key risks remains central banks’ ability to
retain investor confidence in order to successfully
implement Quantitative Easing programs around the world.
If US growth numbers are weak at the end of 2014,
the Federal Reserve could have a hard time
raising rates as many expect it will in mid-2015.
Successful implementation of meaningful
reform in Japan and Europe will be important
for investor confidence in 2015.
REFORM
€ ¥
Global growth in 2015 is expected to be uneven.
US

28
Year Ahead
perspective, earnings growth next year in Europe will, most likely, be a repeat of 2014 in terms of higher
single-digit EPS growth, which will probably disappoint the markets.
In Japan, economic momentum appears to have peaked, weighed down by the negative impact of the
consumption tax hike. Real GDP growth estimates for 2015 have been downgraded sharply in recent
weeks from 1.3% to only 1.0%. The devaluation of the yen hasn’t been as stimulative as hoped and the
pace of reform, a key component of Abenomics, has been disappointing. Earnings revisions for 2015
have also turned negative as expectations fell 12% during the back half of 2014, and we are likely to see
further downgrades as the economy weakens.
One of the overarching themes for 2015 will be central banks’ ability to keep investors buying equities
despite multiple weakness points that could hinder economic growth globally: the Eurozone, Japan, China
and Latin America are weakening, and the periphery of Europe is moving back toward recession. The US
and UK remain the only major economies that are pulling ahead…a bit.
We think one of the biggest ongoing risks, particularly for the global equity markets, is investor willingness
to accept Quantitative Easing (QE) as a solution to the low-growth challenges facing the global economy
Central banks need to make progress with reforms to retain investor confidence
Looking at the year ahead, one of the key risks will be central banks’ ability to retain investor confidence.
It’s certainly worth watching what happens with ECB policy and, in particular,
the ability of Germany and the ECB to find a path together. There is certainly
growing tension between both camps: fearing inflation, Germany is wary of
ECB activity.
In Japan, it will be interesting to see if Prime Minister Shinzo Abe’s third arrow —
aimed at structural reforms, especially in the labor market — will bring meaningful
change. We’ll need to see concrete reforms that show Japan’s willingness to change
in order for Japanese equities to have any growth prospects.
Geopolitical risk will likely remain a concern in 2015
Finally, the geopolitical backdrop in 2015 may be a cause for concern for markets across the globe.
Geopolitics have shifted in a way that many didn’t expect, with Ukraine as a particular stress point.
The situations in Syria and Iraq pose serious threats to the flow of oil, producing a significant risk to the global
economy. While the US might be able to manage an oil crisis, thanks to its shale revolution, the rest of world
is not as fortunate. The recent plunge in oil prices may have a destabilizing effect on regimes in the Middle
East as well as in Russia and Venezuela as oil revenues decline.
Opportunities: European financials and energy
Certain financials outside the US could present opportunities in 2015. The fact that the ECB completed its
October stress tests8
of banks in the region without any significant hiccups may be an interesting rallying
point for European financials. At some point in 2015, the energy sector could become very interesting.
Although oil prices are likely to overshoot to the downside in the near term, prices should stabilize and
gradually recover into the back half of 2015. Most energy stocks are trading at significant discounts to their
Net Asset Values (NAV) and we believe they may offer superior long-term returns. Outside of financials and
energy, we will be looking for company-specific opportunities.
Looking at the
year ahead, one
of the key risks
will be central
banks’ ability to
retain investor
confidence.
8
Source: http://www.bbc.com/news/business-29777589

December 201429
Year Ahead
US Equities
US economy is on the right path, but can’t go it alone
Walter McCormick, Senior Portfolio Manager, US Equities
Sandy Sanders, Senior Portfolio Managers, US Equities
Upside for US growth will depend on Europe and emerging economies stabilizing
The US economy is in a relatively strong position compared to the rest of the world. The US economy is
coming off a very long, slow growth period, and we’re optimistic it will continue to lead the rest of the world
and start to accelerate at some point in 2015.
We anticipate US GDP will be in the range of +/- 3% in 2015, depending on whether Europe and emerging
economies start to stabilize. If those economies continue to be weak, it will reduce their demand for US
exports, especially after a year when the US dollar appreciated considerably against key trading partners.
The Federal Reserve (Fed) has made a strong contribution to liquidity and supported the market, and the US
economy is on the right path, but it can’t go it alone.
US
Clarity on the timing of the Federal Reserve’s
interest rate hikes should alleviate investors’
concerns and boost stocks versus bonds.
The US economy is coming off a very long,
slow growth period, and we’re optimistic it will
start to accelerate at some point in 2015.
The trajectory of the US recovery in 2015
will likely depend in part on the ability of its
trading partners to recover and stabilize.
Lower energy and commodity cost will likely
put more money in the pocket of US consumers
and improve consumer spending in 2015.
+3%
GDP Growth

30
Year Ahead
Possible recovery in employment, consumer spending and the US housing sector
US equity returns could be in the high single digits in 2015 if the economies of its trading partners
stabilize. We expect there will be a recovery in employment, consumer spending and the US housing
sector, which should mean a decent year for earnings growth, because it will be much more dependent
on earnings, instead of continued multiple expansion. Returns
could possibly go higher depending on the trajectory of earnings
growth at the end of 2015.
Employment conditions are improving in the US, and we
expect the unemployment rate will continue to fall in 2015.
At some point, US workers will bump up into the structurally
unemployable level and investments in skill upgrades and
training will be needed. Improving employment conditions will
also have a significant impact on consumer spending and the
sustainability of the recovery of the US housing market in 2015.
The housing market has lagged, and recently stalled, during the
economic recovery. This is unusual because historically it’s been one of the first markets to recover. This time,
however, the damage to the market was severe and it took a long time to unwind. First-time homebuyers
are facing tighter credit conditions than in the past and compared to other types of buyers. We think there
will be a re-ignition in the housing market in 2015, driven by good employment conditions, better credit
conditions for first-time homebuyers and rising consumer confidence and spending levels.
We think there will be a
re-ignition in the housing
market in 2015, driven
by good employment
conditions, better credit
conditions for first-time
homebuyers and rising
consumer confidence
and spending levels.
The impact of lower energy prices
The strong US dollar and the slowdown in global demand is affecting energy markets, creating a sharp
pullback in what had been a leading sector as of mid-2014. Energy stocks and fuel prices have fallen
dramatically, as the supply/demand imbalance emerged in favor of oversupply. This will put more dollars
into the pockets of US consumers, as they will have to pay less at the gas pump. This won’t be a permanent
condition, but it will be a benefit to consumers.
If oil prices fall too far, drilling activity will begin to slow, and production will fall to meet lower levels of
demand. In the longer term, the world will continue to grow and need carbon resources, and there will be a
resumption of higher pricing in energy markets. For now, most investors want to stay on sidelines, and this
could create buying opportunities in 2015.
Clarity on first interest rate increase will support equity markets
The imminence of the Fed’s interest rate increase is on the minds of equity investors — and it ought to be.
This first interest rate hike since the 2008/2009 financial crisis is the most forecasted rise in memory, and
it’s been held back by the continuation of relatively sluggish conditions in the US economy and elsewhere.
The Fed is committed to providing liquidity for as long as necessary to lead to a sustainable recovery, and
it hasn’t yet concluded we’re at that point. But once we get there, there will be a hesitation on the part of
all market participants — fixed income and equity — until they can gauge the trajectory in the backup of
rates. Once that initial concern wears off, the growth of the economy will carry the day for equity investors,
and we can expect better, relative returns on stocks versus bonds.

31
Year Ahead
Market performance based on fundamentals in 2015
The impact of a rising rate environment will likely curb the “animal
spirits” and keep the market from getting ahead of itself. Most of
the recovery off the bottom has come from profit margin expansion,
and that can’t continue indefinitely. Revenue growth and decent
operating leverage will be the key to driving earnings next year.
Market performance is likely to be tied more closely to fundamentals
in 2015, and we expect it to be a good market for stock pickers.
We believe that we are heading towards the end of the global dislike
of US financials. We think current prices mask the recovery potential and earning power of the banking
sector that could accrue in a rising rate environment once the yield curve begins to steepen. As mentioned
before, we also think there will be opportunities in the housing and energy sector in 2015.
Market performance
is likely to be tied
more closely to
fundamentals in 2015,
and we expect it to
be a good market for
stock pickers.

December 201432
Year Ahead
Canadian Equities
Canadian recovery on loose foundation
Philip Petursson, Managing Director, Portfolio Advisory Group
Halfway through the recovery, can Canadian economic growth continue at the same pace?
Five years into the post-global financial crisis expansion, the question is whether the Canadian economy
can continue to grow at the same pace over the next five years. The reality is that growth may not be as
strong in the next five years as it was in the past five as global growth moderates, or downright slows.
Should global growth slow down and commodity prices, specifically oil, fail to recover from their recent
lows, the Canadian economy may face headwinds especially when combined with weaker employment
growth and high household debt.
In 2014, Canadian economic growth trailed US economic growth. For 2015, US GDP growth is estimated
to reach a range of 2.5%–3.0%. According to the Bank of Canada (BoC), 2015 GDP growth is projected
to be at 2.5% before slowing to 2.0% in 2016.
+2-2.5%
GDP Growth
Exports
Economic growth in Canada might not be as strong
in next few years as it was in the past five years.
Global growth is moderating, if not downright slowing.
Performance of the Canadian market
will depend heavily on the trajectory
of global growth in 2015.
Canadian economic growth will need
to be driven more by export demand,
rather than domestic demand, in 2015.
The Bank of Canada is unlikely
to raise interest rates in 2015
and will likely wait until 2016.
BoC
2016?

33
Year Ahead
The inflation outlook is expected to remain benign in Canada, and any small jump in inflation will likely be
as a result of the lower Canadian dollar and not increased demand. However, any dollar-driven inflation may
be offset somewhat by lower energy prices. Over the next 12-18 months, we expect the Canadian dollar to
move lower, trading in the range of US$0.80 to US$0.87.
Bank of Canada might not raise rates until 2016
Regarding interest rates, the BoC is unlikely to raise interest rates in 2015. In fact, the BoC’s current
comments suggest that there is the potential for a rate increase to come in 2016. We expect that any interest
rate increase by the BoC will follow a rate hike by the Federal Reserve (Fed). The consensus view is that the
Fed may not raise rates until the back half of 2015.
Consumer debt at all-time high could slow personal consumption and housing activity
As Canadian consumer debt remains near all-time highs, personal consumption and housing activity may start
to slow in 2015.
Canadian consumers continue to take on more debt compared to US counterparts
Source: Bloomberg. October 2014.
Housing as a percentage of the economy has doubled to 7.5% of GDP since 2004 (similar to where it was
at the peak of the US housing market). One in seven Canadians work in the construction sector and housing
activity has been a key driver of the Canadian economy over the last five years. Should that housing activity
slow, it would create a drag on GDP in 2015 and 2016.
Householddebtasa%ofdisposableincome
60
70
80
90
100
110
120
130
140
150
160
170
United States Household Debt % of Personal Income Canadian Credit Market Debt to Disposable Income
03/1990
10/1990
05/1991
12/1991
07/1992
02/1993
09/1993
04/1994
11/1994
06/1995
01/1996
08/1996
03/1997
10/1997
05/1998
12/1998
07/1999
02/2000
09/2000
11/2001
04/2001
06/2002
01/2003
08/2003
03/2004
10/2004
05/2005
12/2005
07/2006
02/2007
09/2007
04/2008
11/2008
06/2009
01/2010
08/2010
03/2011
10/2011
05/2012
12/2012
07/2013
02/2014
Job and wage growth continue to be weak in the recovery
Job and wage growth have been weak in the economic recovery. Canada has lost a significant number of
manufacturing jobs to south of the border and to Asia in the last decade as the Canadian dollar moved

34
Year Ahead
higher. Even with the recent decline of the Canadian dollar, manufacturing activity hasn’t seen substantial
improvement. Many of those full-time, well-paying manufacturing jobs have been replaced with part-time,
lower paying service jobs.
The federal government has shed jobs over the last couple years in an effort to create a leaner government.
We expect this to start weighing on the Canadian economy next year. Given this backdrop, if there is no wage
growth and very little labor growth, Canada’s household indebtedness will start to look like a real challenge.
We will be watching for developments leading up to the Canadian federal election in the fall of 2015. The
incumbent Conservative government will likely offer favorable tax relief for middle class Canadians leading up
to election. It already announced its plan for income splitting in fall 2014. These tax relief incentives could be
a positive catalyst for the Canadian economy.
Global growth and commodity prices are biggest risks to the Canadian market
The biggest risks to the Canadian market are global growth and commodity prices. The price of oil pulled
back in the second half of 2014, as the US dollar moved up and global supply/demand fundamentals came
into question. We believe we’re near the low end of the price range for oil.
In December, oil hit a five-year low with Brent crude and the US benchmark West Texas Intermediate (WTI)
dropping after OPEC refrained from cutting production to ease a supply glut.9
WTI crude has plummeted
more than 40% since reaching a 2014 high of US$107.26 per barrel on June 20.10
The impact to Canadian
heavy oil producers hasn’t been as severe as the WTI price would suggest as the spread between Western
Canadian Select and WTI has narrowed from earlier in the year. In addition, as the Canadian dollar has fallen
relative to the US dollar, Canadian producers have not been as disadvantaged as their US counterparts.
However, the risks to Canadian oil producers — and subsequently, the associated risks to other beneficiary
companies to the energy sector (namely banks) — we believe will increase the longer oil prices remain at
these low levels or fall even lower.
Canadian markets could perform well in 2015 if energy and materials sectors advance
TSX Composite Index company earnings showed improvement through 2014 and could continue to improve
into the first half of 2015. Earnings could benefit if commodity prices stabilize or improve from their current
levels. Meanwhile, more domestically-focused parts of the Canadian economy will likely be challenged next
year given a slower economic growth outlook. While the export-focused sections of the economy are more
likely to benefit from moderate growth in the US — Canada’s largest trading partner.
For Canadian equities to perform well in 2015, the energy and materials sectors need to advance. This part of
the market has more attractive valuations, however, it hinges on commodity price improvement. We believe
that commodity prices and producers are undervalued. If global growth merely stabilizes, commodity prices
should move higher benefiting producers and service-related companies, which make up nearly half of the
S&P/TSX Composite index.
Fortunately, the Canadian domestic economic challenges won’t necessarily translate into weak stock market
performance. We expect sectors including telecoms, banks, consumer discretionary, as well as exporters (oil,
gas, metals and mining, and lumber) to move ahead at a moderate pace.
9
Source: Bloomberg, December 8, 2014.
10
Source: Dow Jones MarketWatch.com, December 9, 2014.

December 2014
Despite economic challenges,
opportunities still abound in European equities
David Hussey, Head of European and EAFE (Europe, Australasia and Far East) Equities
2015 is looking more favorable as economic constraints continue to ease
We believe that the confluence of factors that have hit the demand side of the European economy are
now receding, namely: weak US growth in Q1 2014, strong commodity prices, a strengthening euro as
real interest rates rose, low target rates not being passed on by the banks into the wider economy, the
hangover from ongoing fiscal austerity and a declining European Central Bank (ECB) balance sheet.
Indeed, we are seeing evidence that this long list of economic strictures is now easing, one by one. The
recent decline in commodity prices should help to increase consumer spending power, a weaker euro/US
dollar rate since the summer11
could potentially add 0.5% to GDP growth and 10% to European corporate
35
Year Ahead
European Equities
11
Source: Bloomberg . EURUSD = 1.36 as at June 30, 2014, EURUSD = 1.25 as at November 20, 2014.
+1-1.5%
GDP Growth
We’re reasonably confident that 2015
is the year we will finally see
the European recovery on a surer footing.
We’re optimistic that ultra-cheap money
from the TLTRO program will make its way
to European corporations.
The recent decline in commodity prices should
help to increase consumer spending power.
European companies likely to continue
to be the targets of M&A activity
for the next 12 months.
€
Europe Inc Europe Inc
M&A
OIL
$

earnings, as roughly 50% of European earnings come from outside Europe. The well-publicized withdrawal
from the peak of austerity is expected to also remove a GDP drag by up to 1% in 2015.
Also, it’s worth considering that some indicators remain in positive territory; for example, Eurozone-wide
car and truck sales are rising again, house prices are rising across Europe, plus the early internal “devaluers”
— i.e., those economies with wages that have become more competitive namely Spain, Portugal and
Ireland — are being rewarded with decent GDP recovery.
The consensus GDP outlook for Europe as a whole in 2015 is in the 1%–1.5% range. While outright
recession and deflation have been predicted by the bears, we believe it’s reasonable to assume that next
year is looking more favorable as long as the US economy remains strong, China avoids a hard landing and
Japan shows signs of continued recovery.
Hope that liquidity will start to reach corporates
ECB President Mario Draghi has stated that corporate bond buying combined with the latest targeted
long-term refinancing operations (TLTROs) could expand the ECB balance sheet by another trillion euros.
Investors will be watching the level of take-up from European banks, signaling whether they can find a
home for this cheap money in the underlying economy.
Sceptics point to limited demand for these funds, but we think there’s a decent chance of getting the
cheap money to European corporates. That hasn’t previously been the case as banks haven’t been willing
to pass on their cheaper funding costs to SMEs. If this doesn’t work, then the ECB will push the button on
Quantitative Easing (QE) and force banks into higher risk assets.
Attractive valuations, potential for more M&A activity
Currently, we believe that European equities still look attractively valued. The region’s stock markets
are home to global businesses that are trading at big discount multiples to their US peers. We expect
to see more US M&A activity focused at European corporates for the next 12 months — especially with
borrowing costs as low as they are.
Currently, we see particular value in the financials and telecommunications (“telcos”) sectors. European
banks emerged from the October stress test relatively unscathed. We believe we’re going to see the stocks
pay some healthy dividends, partly because capital generation is likely to be strong. Meanwhile, European
telcos look enticingly valued on a free cash flow basis. Recent consolidation in the sector is streamlining the
competitive landscape and allowing for better pricing, recovering cash flow and dividends. This in turn is
helping telcos to pay down debt. The confluence of those three things is expected to release considerable
value in the European telco space.
We believe that 2015 could see the fragile European and global recoveries take hold again and Europe is
likely to avoid deflation. We think that QE may not happen but if required, the ECB will follow through
and deliver further economic stimulus. Behind the negative headlines, the Eurozone is still home to many
globally-focused stocks with attractive valuations and plenty of interesting opportunities remain for
investors with a long-term view.
36
Year Ahead

December 201437
Year Ahead
Japanese Equities
2015 could be a year of change for Japan
Edward Ritchie, Senior Investment Analyst, Japanese Equities
Snap election in December 2014 viewed as Abenomics referendum
As 2014 draws to a close, there has been no let-up in the pace of news coming from Japan. Initial third quarter
2014 data, released in November, showed the country had fallen back into recession as the reality of April’s
consumption tax hike began to bite. This was despite a surprise announcement in October that the Bank of Japan
(BoJ) would be embarking on another round of Quantitative Easing. Then, just as markets were digesting news of
a downturn in the world’s third largest economy, on November 21, President Shinzo Abe called a snap election.
The election in mid-December was widely viewed as a referendum on President Abe’s decision to postpone the
second consumption tax rise for another 18 months.
The effect of the consumption tax hike has been stronger than initially thought. Although consumption
began to recover between June and September, companies held back their capital spending plans, which
+
GDP Growth
Japan’s GDP growth is likely
to be positive in 2015.
While consumer sales tax is going up,
the government is looking to start
cutting corporate tax rates in 2015.
Investors will be watching for the impact
of an eventual second consumption
tax hike on consumer spending.
Bank of Japan’s monetary stimulus program
is now up to 80 trillion yen per year.
TAX HIKE
Corporate
Tax Bill
BoJ
¥
80
Trillion

38
Year Ahead
could have a more long-term impact on the economy. The future of Abenomics depends on corporates and
consumers believing in a sustainable economic recovery and positive inflation environment. The delay in the
second consumption tax hike is an attempt to achieve this in 2015.
Government looking to reduce corporate taxes
While the government is trying to move toward a more balanced fiscal policy by raising the consumption
tax, there’s also a plan to reduce the corporation tax, which currently stands at 35% (among the highest in
world, along with the US). The goal is to eventually reduce the tax to 25%, however there are no specific
plans in place to achieve this aim. By the end of 2014 or the beginning of 2015, implementation plans
should be clearer. Our expectation is that it will be phased in gradually over the next five years, with a
roughly 2% reduction each year.
BoJ increases annual stimulus to 80 trillion yen
In a largely unexpected move, the BoJ announced on October 31 that its monetary stimulus program would
be increased to 80 trillion yen per year. It’s important to note that the BoJ’s proportion of the entire Japanese
government bond market has risen over the course of the last few years from 10% to 20%12
, and we expect
that this percentage may rise further.
Earnings outlook improving for new fiscal year
We expect to continue to see a gradually improving earnings outlook in 2015. A weaker yen will likely support
further earnings growth in the second half of the 2014 fiscal year, so we think we could see at least 10%,
probably 15% earnings growth in the Japanese market in 2015. Additionally, Japanese companies are making a
bigger effort to return cash to shareholders, so investors will potentially see some more share buybacks toward
the end of 2014 and into 2015, which we think will be a contributing factor to 2015 earnings growth.
We see attractive valuations in the consumer discretionary and financial sectors. Auto stocks are expected to
perform well on improving demand in the US, helped by a weaker currency. Financials, particularly banks and
real estate, should benefit from the positive impact of Quantitative Easing.
New technology and overseas agreements creating competitive advantages
In the year ahead, we continue to focus on companies that are at the forefront of using technology
to create a competitive advantage. We are particularly seeing this in the manufacturing sector where
carmakers, for example, are harnessing the investments they have made in new technology to improve
market share and profitability. Hybrid vehicles are now generating higher profitability for some companies
than their conventional counterparts. We also recently saw Toyota announce the launch of its first
marketable fuel cell car, called Mirai13
(which means “the future” in Japanese) and we expect to see more
innovations from Japanese carmakers in the future.
We are also seeing interesting examples of Japanese companies combining their technological know-
how with overseas companies’ marketing and distribution expertise. This is particularly true in the
pharmaceutical sector where cross border tie-ups, such as those of Chugai with Roche and Shionogi and
GlaxoSmithKline, are becoming increasingly common.
While many investors may be focusing on Japan’s political and economic challenges, we believe that those who
delve deeper into some of these corporate-level dynamics are likely to find particularly interesting investment
opportunities in the year ahead.
12
Source: Bank of Japan
13
http://www.businessweek.com/news/2014-11-16/toyota-plans-mirai-fuel-cell-car-traveling-300-miles-per-tank

December 201439
Year Ahead
Asian Equities
Asian reform progress needed in 2015
Ronald CC Chan, Head of Equities, Asia
Asian equities likely to perform generally well in 2015 as progress is made on reform
We expect Asian equities to perform generally well in the year ahead, underpinned by commitments to
reform in several key markets that should pave the way for sustainable long-term growth. 2015 GDP growth
is expected to remain between 4–6% for ASEAN members and India, while Australia, Korea and Taiwan are
forecast to show 3–4% growth — the Chinese economy is forecast to grow at the still-robust pace of 7.1%
for the year.14
14
IMF World Economic Outlook, October 2014.
+3-7%
GDP Growth
REFORM
US $
ASIA
ASEAN members and India: 4–6%
Australia, Korea and Taiwan: 3–4% growth
China: 7.1%
Following the election of new governments in
India and Indonesia in 2014, we expect to see
significant reforms in the year ahead.
Interest rates in the region to remain
benign as declining commodity prices
emerging as major drivers of disinflation.
While we do not expect the US to raise rates
rapidly, speculation of interest rate movement alone
could increase the volatility of capital flows to Asia.
OIL
$

40
Year Ahead
Declining commodity prices should help support growth in 2015
We expect interest rates in the region to remain benign as declining commodity prices, notably oil,
are emerging as major drivers of disinflation. Combined with the US economy’s ongoing recovery, this
environment sets the region up for another year of decent growth.
North Asia remains attractive
Against this backdrop, some regional markets are trading at highly attractive valuations, and we expect
selective markets to do well in the year ahead. North Asia looks particularly attractive, trading at forward
price to earnings (P/E) lower than the ASEAN average.
We remain constructive on Taiwanese equities. The market currently trades at a reasonable valuation
and is forecast to post healthy earnings growth in 2015 due to continued demand for products such as
next-generation smartphones and wearable devices. Furthermore, the proliferation of the Internet of
things (IoT), industrial automation and the development of 4G telecommunication infrastructure in Asia
present new growth opportunities for the Taiwan technology supply chain. We find that many Taiwanese
companies have robust balance sheets and are well-positioned to pursue growth while maintaining
decent dividend payouts to shareholders.
Meanwhile, the South Korean economy should also benefit from a US$40 billion stimulus package
announced in July 2014 aimed at boosting domestic demand. A new tax plan aimed at encouraging cash-rich
companies to spend more on capital good investment, wages and dividends should also be positive for the
economy. Higher dividend payout ratios should support selective Korean stocks, and the government’s pro-
growth policy stance should help support a pick-up in investment and company earnings. Current valuations
are attractive, but increased foreign exchange volatility could impact the competitiveness of Korean exporters.
Selective opportunities in Southeast Asia and India
Following the election of new governments in India and Indonesia
in 2014, we expect to see significant reforms in the year ahead.
Fuel subsidy cuts in India, Malaysia and Indonesia should alleviate
fiscal and current account risks in these economies. Although
this shifts the burden of buying fuel to households, government
savings could be used to lower the budget deficit or could be
reallocated towards capital and infrastructure spending. Similarly,
the implementation of Goods and Services (GST) taxes in Malaysia
and India in 2015 should improve direct tax collection and the
fiscal balances of these countries.
We also expect governments in South East Asian economies to
continue to invest in infrastructure development going forward. In
particular, Indonesia plans to accelerate the development of farm
irrigation systems, and ports and power plant construction over
the next few years.
Achieving the economic
goals set out by
governments in the
Asia Pacific ex Japan
region largely depends
on political stability
and each government’s
ability to execute. Failure
to implement targeted
reforms may impede
economic growth.

41
Year Ahead
Finally, we should see continued growth in foreign direct investment (FDI) inflow to Southeast Asia and India
as governments in the region offer incentives and improve the ease of doing business to attract foreign
investors. In this vein, it is worth noting that the opening of new casinos is expected to provide a boost to
the Philippines’ economy next year. Related employment opportunities in the services sector (i.e., tourism and
entertainment) should help drive per capita income growth and domestic consumption. This is in addition
to continued robust inflow of offshore remittances and growth in the business process outsourcing (BPO)
segment of the economy.
Potential interest rate risk in the near term
While we maintain a positive view on the long-term outlook of the Asia Pacific ex-Japan region, we continue
to watch the US interest rate trend. We do not expect the US to raise rates rapidly, but speculation of interest
rate movement alone could increase the volatility of capital flows to Asia.
Achieving the economic goals set out by governments in the Asia Pacific ex Japan region largely depends on
political stability and the ability of each government to execute. Failure to implement targeted reforms may
impede economic growth. For example, if the ongoing protests in Hong Kong are prolonged, we expect they
will weaken the special administrative region’s (SAR) economy.
That said, an effective Modi-led government has already yielded positive changes in the Indian economy.
Looking ahead, we remain optimistic that the new President of Indonesia, Joko Widodo, and his cabinet will
be able to execute on planned political and economic reforms.

December 201442
Year Ahead
Greater China Equities
China remains firmly on a path to growth in 2015
Kai Kong Chay, Senior Portfolio Manager, Greater China Equities, Manulife Asset Management
A foundation for potential Greater China returns in 2015
As 2015 dawns, China remains firmly on a path to growth. Painful decisions continue to be made as the
government lays a foundation for long-term growth despite the potential for further short-term pain. This is
no easy task, as it requires officials to strike a delicate balance between implementing the social, political and
economic reforms necessary to develop an economy focused on consumer demand and innovation while also
providing stimulus and support to ensure continued economic vitality.
In our view, the government has achieved this delicate balance thus far. Aggregate GDP growth averaged
7.4% over the first three quarters of 2014 based on stimulus spending, targeted monetary easing and
support for smaller companies and key growth industries.
REFORM
US
We expect GDP growth of 7.1% for China
in 2015 and 3.3% for Hong Kong.
We expect policy reform to bear fruit
in 2015 and beyond.
2015 GDP likely to be boosted by
monetary stimulus announced in late 2014.
We will continue to watch the US interest rate
trend for its potential impact on corporate and
household balance sheets due to property exposure.
CHINA +7.1%
HONG KONG +3.3%
GDP Growth

43
Year Ahead
Looking forward, fourth quarter 2014 and 2015 GDP are likely to receive a boost from about US$126 billion
in liquidity support implemented over the past few months and a policy rate cut of 40 bps implemented in
late November 2014.
The rate cut acknowledges that the short-term pain had reached a point where more broad-based economic
stimulus was required, and we believe it will have the desired effect — 2014 GDP growth is now likely to be
at the upper end of the government’s 7.0–7.5% target for the year.
This is generally positive for Chinese equities as it signals that policymakers are taking a much more aggressive
stance on stimulus than previously expected. Follow on rate cuts are possible in 2015 alongside potentially lower
bank reserve requirement ratios (RRR) and the possibility of further moderate liquidity injections.
At the same time, developed markets continue to provide a generally supportive backdrop for the Chinese
economy, and we expect policy reforms to bear fruit in 2015 and beyond. We are particularly looking
forward to the Communist Party of China’s upcoming 2015 National People’s Congress for an update on
reform progress to date and potential announcements on next steps.
Focus on corporate fundamentals
We will continue to watch economic indicators closely as industrial activity, exports/imports and the
Purchasing Managers’ Index (PMI) remain important gauges of the health of significant sectors of the
Chinese economy. Nevertheless, we recommend that investors focus on individual stock fundamentals
rather than macro indicators in order to identify companies that are poised to prosper as the country’s
economic reorientation progresses.
This entails selecting companies with strong management teams, compelling business models and solid
and transparent financial foundations that are geared to structural growth drivers in China. Many of these
companies are currently reaping the rewards of government stimulus spending and, in the medium term,
should benefit from continued policy support. In this environment, we remain constructive on sectors including:
■ Healthcare, which is benefiting from increased demand for high-quality medical services as salaries and
living standards rise alongside higher government spending on related programs.
■ Environmental protection technology, which includes clean energy and water purification companies that
are benefiting from government pledges to reduce pollution.
■ E-commerce, which was a key theme in 2014 that we expect to remain strong in 2015 as consumption
patterns continue to shift due to increasing mobile Internet use.
Shanghai-Hong Kong Stock Connect launched
The initial November 2014 launch of Shanghai-Hong Kong Stock Connect provided a boost to many
Shanghai Stock Exchange-listed shares on the back of strong trading volume, with international investors
exhausting their quota on the first day. The Hong Kong Stock Exchange (HKSE) saw less inflow from
Mainland China, in part because the platform restricts trading of Hong Kong shares to institutional investors
and retail investors with significant account balances. While trading volume in both directions quickly tailed
off in the first week, we still expect the platform to ultimately emerge as a conduit for increased demand

44
Year Ahead
for stocks in both markets. Connect represents the most unfettered corridor for investment between the
Mainland China and global markets to date, and we believe it is just the first step toward further integration
of the SSE and HKSE.
Hong Kong buying opportunity amid protests
Hong Kong shares were volatile in the first half of 2014 before posting strong gains in the third quarter.
However, things changed abruptly in mid-September, with the index quickly dropping close to 10% as
“Occupy Central” street protests dampened investor sentiment.
Despite this, the Hong Kong economy remains robust. Unemployment is low, property market cooling
measures are expected to be scaled back and tourist arrivals to Hong Kong should rebound as the number of
protesters has shrunk significantly. These developments, along with the continued operation of the Connect
platform, should be positive for the market as 2015 dawns.
Taiwan expected to rebound from oversold levels
We consider Taiwan an attractive market going into 2015. Many strong companies with solid balance sheets
are oversold and we expect earnings growth to drive share price re-ratings. We remain constructive on
Taiwanese technology companies, which continue to benefit from demand growth in developed markets,
and auto parts manufacturers.
Potential near-term risks
We maintain a positive view on the long-term outlook of the Greater China region, but we continue to
watch the US interest rate trend. While we do not expect the US to raise rates rapidly, any sharp increase
would likely have negative implications for corporate balance sheets and for household balance sheets due to
property exposure.

2014_Global_Intelligence_

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